What Are Merchant Accounts and Why Should You Want One?

What Are Merchant Accounts and Why Should You Want One?

Scenario

You've decided to get yourself into business on the Web, or you're an established company who wants to sell goods and services on-line. While browsing around your favorite sites, you've noticed a plethora of adverts which grab your attention. "Take Credit Cards Now", they scream, "0% Commission!".

Fighting your way through the jungle of e-commerce hype can be difficult, but we want to make it simple for you. You need a merchant account? You want to sell on-line? Let us help you find some answers to those nagging questions.

Credit Cards? Who cares?

Your customers are all using credit cards to make purchases on the Web already, so don't ignore the demographics!

Retailers refusing to enter the e-commerce arena are probably digging themselves an early grave. You know you want to make money using the Internet, especially if you already have an existing site promoting your business. Take it a step further, and actually sell your products online.

You're worried about the cost? It's significantly cheaper than opening a new shop!

What is a Merchant Account?

A Merchant Account involves a special type of arrangement with a bank or clearing house that allows you to accept credit card payments into a special bank account (your "Merchant Account"). The results of any credit card transactions passed through your online authorization company are then, hopefully, credited to your account if the transaction is approved.

Why use a Merchant Account?

Having a Merchant Account is the most cost effective way of accepting payment by credit card. It's not the only way, as will be discussed in our Doing It Without A Merchant section. But, put simply, once you have a merchant account (and a company who will authorize the payments online), you will be able to accept credit card numbers on your site, and then receive any payments due to you. It's as simple as that.

How does it work?

Getting the money from your customers credit card and into your account involves several stages. The first is actually approving the sale and taking the customer's credit card details on your Web site. Next, the card has to be verified and approved, to check that it's not been stolen, or has expired. Your Merchant Account company may provide this service, or you may choose to use an online authorization company, such as Authorize.Net. It's wise not being too cheap with companies who provide authorization services, since accepting invalid credit card transactions could cost you dearly.

After the card has passed rigorous security checks, your merchant account provider (or online authorization company) then passes the details to their credit card processor who debit the customer's credit card and deposit the money into your merchant account. This chain of events takes between 1 and 2 days with most merchant account providers, although the features that your chosen provider offers may turn out to be different. We'll be covering a number of merchant account providers in our reviews.

The other method

While some Merchant Account Providers offer an 'all-in-one' solution where they, supposedly, handle your merchant account and the processing of the credit card orders, you may prefer to let separate companies handle each section. For example, you may let one company provide the online authorization service, and get a merchant account yourself with your chosen bank.

When we come to review services, later on in this series, we'll investigate both methods. Remember, however, that using the 'all-in-one' method may mean a larger commission is taken out of your transactions, whereas the latter method may just cost you a larger startup fee.